National Vacancy Rates Nearing a Turning Point as Industrial Development Begins to Slow

michaelplasenciauf
Nov 19, 2024
2 min read

Updated: Apr 23

The U.S. industrial market saw vacancy rates rise 14 bps to 6.63% in Q3 2024 —the smallest increase in 18 months.

WREV

November 19, 2024

Development Slowdown Indicates Lower Supply Growth

New industrial developments are winding down across the country, with 65 million square feet completed last quarter—a 50% reduction from Q3 2023. The shift from record-high construction levels in 2021–2023 to pre-pandemic levels suggests a diminishing supply pipeline, with fewer projects slated to complete in the coming quarters. This reduction in new supply strengthens the market’s absorption rate potential, as positive absorption is expected through 2025.

High-Growth Tenants Drive Demand

High-demand sectors such as e-commerce and cleantech manufacturing continue to occupy large industrial spaces. Amazon, along with cleantech manufacturers like Qcells, Amprius, and Canadian Solar, recently took occupancy of multiple facilities over 500,000 square feet. With the Inflation Reduction Act fueling cleantech expansion, industrial spaces catering to these sectors are likely to see strong demand, especially in key logistics markets.

Challenges for Certain Retail Sectors

Retailers linked to home improvement and furniture sales face demand challenges, resulting in reduced leasing activity and some subleasing of existing space. Companies like Home Depot have closed several distribution centers in recent months, partly due to shifts in residential construction trends.

Outlook: Considerations for Investors

As vacancy rates approach a potential peak, should consistent demand translate to continued rent growth, industrial real estate will continue as a premiere asset class in the CRE space. With demand stabilizing and supply growth slowing, industrial assets may experience an increasingly balanced supply-demand dynamic.

References

Ponsen, A. (2024, October 9). "US industrial vacancy rate rises at slowest pace in 18 months." CoStar News.